Lord Bilimoria: My Lords, in May last year, I chaired the B7 before the G7 in my role as president of the CBI. One of our speakers was Gita Gopinath, chief economist of the IMF. She said that an economy like the UK would have a V-shaped recovery because of our £400 billion of spend to save businesses, jobs and the economy—which is one of the highest in the world per capita, and for which businesses are very grateful—and because of our world-beating vaccination programme. But what has happened since then? We have had labour shortages, supply chain problems,  energy prices soaring, with inflation predicted now to go up to 8% and interest rates rising. We have a very fragile recovery. The noble Baroness, Lady Penn, mentioned productivity: productivity has been flatlining since the financial crisis of 2008-09.
On 3 February this year, our director-general of the CBI made an excellent speech on growth. It was very well received all round. He said—the noble Lord, Lord Razzall, just mentioned this—that the Government say we are the fastest-growing economy in the G7 but that V-shaped recoveries around black swan events are not the time for credit or blame. The downward nosedive is not an accurate judgment of economic performance, and nor is the climb back up. He went on to point out that the OBR is forecasting the UK’s economic trajectory, after the rebound is complete in the next 18 months, to grow at 1.3% to 1.7%.
As a country, historically we have grown at between 2% and 2.5%. Between 1993 and 2008, before the financial crisis, we grew at an average of 3%. Are the Government willing to accept a forward growth rate of 1.3% to 1.7%—such a low level of growth? A Government should have low taxes but also fiscal discipline and dynamic regulation. Do the Government agree? Today we have high spending, high taxes and low growth—a vicious cycle. We have a record 6 million people in England on waiting lists for routine hospital appointments. Sajid Javid, Secretary of State for Health, at one stage said that the waiting lists might go up to 13 million people. We have backlogs in courts, schoolchildren who have lost out on learning, transport funding models that are under pressure and, on top of all this, an ageing population. The CBI has worked out that by 2030, we may need to find an additional £40 billion to £50 billion per year to cover the costs of an ageing society. Do the Government accept this?
How do we pay for this? Is it by turning to taxation? Is it by raising taxes? We are already facing the highest tax burden in 17 years. On corporation tax, analysis by the CPS and the Tax Foundation demonstrates that we are currently the 11th most competitive country in the OECD. A lot of that is to do with the super-deduction that the Minister mentioned. However, when this ends in April 2023, and corporation tax increases from 19% to 25% in one swoop, we will fall to 31st place. Will the Minister and the Government accept that?
Our property tax is eyewatering, one of the highest in the OECD. I will come to business rates later. We know that raising taxes reduces growth and cutting taxes drives growth up. Look at the examples just now. We remove road tax to stimulate the buying of electric vehicles and sales are rocketing. We reduce VAT to stimulate consumption. We reduced VAT during the pandemic from 20% to 5% in hospitality. We put that up to 12.5% but the Government are now putting it back to 20% in April. Why are they doing that? I ask them to keep it at 12.5% for a while longer. UK Hospitality and the British Beer and Pub Association are saying that they need help for longer. What is the point in a VAT relief when for the past two years, restaurants, pubs and hotels have been shut? They cannot avail themselves of a relief when they are shut, only when they are open. What is the point, when there is guidance to work from home in December and January and their outlets are empty because of it?  They need the help when their outlets are full, which is starting to happen now. Give more help and let it carry on.
We will not pay down todays debt or extend the public services and reduce taxes on a growth rate of 1.3% to 1.7%. We need sustainable long-term growth based on investment, innovation, and productivity. Tony Danker, the director-general of the CBI, where I am president, says:
“Now it has been the Treasury’s job as an institution since the stone age to be sceptics of this kind of talk. But economic policy and fiscal policy are not the same thing. No CEO… puts the Finance Department in charge of sales. Or lets them alone determine strategy. Companies can’t afford not to invest in growth. And nor can countries.”
We have seen this before. The growth rate that I spoke about, at an average of 3% per year between 1993 and 2008, was twice the rate of the last decade, and three-quarters of that growth was driven by investment, technology, and innovation—double what they have contributed over the past decade.
Let us look at other countries and take an example. Tony Danker took the example of Singapore, which reduced its operating costs, cut corporation tax by 10%, incentivised investment, spent on infrastructure, and had new venture capital services, low-interest loans, and tax incentives. The result of all those measures is 6% growth per year.
There is talk of Singapore-on-Thames: the three forces of Brexit, the race to net zero and the end of the pandemic give us a huge opportunity. During the pandemic, we have proven what a powerhouse of innovation and life sciences we are, with Oxford/AstraZeneca and the collaboration with the Serum Institute of India. Three-quarters of companies adopted new technologies. In 2020 alone, 700,000 new businesses were created. In offshore wind, we have shown with contracts for difference that the Government can use the balance sheet to unlock high-growth markets. The Budget mentioned skills bootcamps—this is just the sort of thing we need to do.
The CBI has recommended that, when the super-deduction ends in March 2023, we should replace it with a permanent investment deduction—a 100% tax deduction for capital spending. I will come to that later. Would the Government also agree that it is time to turn the apprenticeship levy into something far more flexible, which would allow businesses, for example, to buy training modules and have greater flexibility in types of training, and to incentivise and reward firms that go the extra mile to train their people, with an upside kicker for any businesses that spend more than their levy?
We must incentivise green growth. We need an extra £3 billion a year to properly retrofit our homes and businesses to bring down energy bills. Hydrogen is the future. The University of Birmingham, of which I am chancellor, was proud to demonstrate at COP 26 the world’s first retrofitted hydrogen-powered train, designed by the university and built in collaboration with Porterbrook, the rolling stock company, and 20 other companies, including Siemens and the Government’s Innovate UK—universities, business and government all working together for a world first. This is the sort of thing we should be doing.
We at the CBI have recommended that the Prime Minister should set up a new office for future regulation. Labour shortages are an acute problem across all sectors; the Government did not listen when we brought up the issue of drivers and butchers last June—sadly, pigs have been unnecessarily culled. We suggest that there should be, in effect, a revamped Migration Advisory Committee, an independent council for future skills; as the Monetary Policy Committee sets interest rates that the Bank of England has to follow and the Low Pay Commission sets a minimum wage which the Government have to follow, this body would from time to time say “We need so many thousand jobs—open up the shortage occupation list and provide a one or two-year visa.” Do the Government agree that this is required to address the labour shortages?
Growth is the only real answer to our cost-of-living crisis, with rising energy prices and high inflation. Better growth ensures that we will not be imprisoned in a cycle in which we cannot afford what we need or raise taxes to pay for it. The noble Baroness, Lady Penn, spoke about the super-deduction; the day before yesterday, the CBI released our survey. A super-deduction successor, which I spoke of, could trigger a £40 billion a year boost for UK business investment. According to our survey, 22% of investment qualifying for the super-deduction would not have taken place in the UK without it; another 19% of investment qualifying for it has been brought forward to take advantage of the relief. The Government announcing a permanent successor now could increase annual capital investment by 17% by 2026—worth £40 billion a year. Will the Government acknowledge this and listen to this recommendation?
We need to incentivise investment much further. It is not just about taxes going up to the highest level in 70 years; we need to reduce taxes. We have seen research time and again which shows that, if you reduce taxes, growth increases. The most famous example is the Laffer curve—in the growth that took place in the 1980s, you had low levels of inflation, a steep rise in private investment and rising incomes. Between 1982 and 1990, the foundations of the Laffer curve enabled the second-longest peacetime economic expansion in the history of the United States—of course, Laffer was an adviser to both President Reagan and Margaret Thatcher. Yet here we are with the highest tax burden in 70 years.
We now really need to focus on investment. Are the Government aware that the UK has been seriously underpowered when it comes to investment? It has deteriorated from 14.7% of GDP in 1989, to as low as 10% at the end of 2019. Of course, we have had the pandemic, but we are still 5% below our pre-Covid levels by the end of 2022. We must do everything we can to increase investment. Between 2021 and 2025, the UK Government were projecting to invest an average of 3.4% of GDP, versus 3.9% in America, 4.1% in Canada, and 5.9% in Japan—let alone 9% in China. Green spending represents 3.8% in the US and 1.8% in the EU, compared with just 0.55% here in the UK. Our business rates, which I mentioned earlier, are four times higher than Germany and three times higher than the OECD average. We invest 1.7% of our GDP in innovation and R&D, compared with 3.2% in Germany and 3.1% in the United States of America.
Instead, we have: a freezing of the income tax thresholds; National Insurance increases of 1.25% for employers and 1.25% for employees; corporation tax going up from 19% to 25%; the super-deduction of 130% being removed in 2023; VAT, having gone down from 20% to 5% and then up to 12.5%, is being put back up to 20%; and dividend tax being increased. On top of that, we were just informed yesterday by the Prime Minister that lateral flow tests will be removed from 1 April. Could the noble Baroness, Lady Penn, tell us that this has surely been penny-wise and pound-foolish? How much of the £2 billion that was spent in January on testing, which the Government speak about, was for lateral flow testing or for PCR testing? What is the bet that a small proportion was for lateral flow testing and the Government are trying to cut-back cost when they should be making that available to people who need it—whether they have symptoms, are visiting vulnerable people or need to test to get the antivirals which the Government have just ordered? People are now used to taking these tests. It has taken a year of people using them regularly to feel comfortable with them.
Finally, debt to GDP went up to 250% after the Second World War—arguably the last major global crisis before the pandemic. We have gone up to 100%. Now is not the time to give up. With the fragile recovery that we have, we need to ensure that we are like India, which did not put up its taxes in the February budgets of either last year or this year, because it did not want to stifle its recovery or for businesses to suffer. What is the result? The IMF has forecast India to be the fastest growing major economy, with a 9% growth rate.
With £400 billion, let us not stop at the last mile; let us keep giving help to businesses. Then we will have the investment, the growth and the jobs that will pay the taxes and pay down the debt.